Poor start to 2010 for pension funds

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After a stellar year of stock market growth in 2009, pension funds have endured a tough start to the new year.

The average pension fund recorded a disappointing loss of 1.98 per cent in January on the back of stock market falls according to research from Investment Life & Pensions Moneyfacts.

Many of the high risk sectors which fared so well in 2009 posted the heaviest losses last month. These include: Commodity/Energy (-7.02 per cent), Asia Pacific excluding Japan equities (-6.02 per cent) and Europe excluding UK equities (-5.96 per cent).

By contrast January was a good month for bond and fixed interest funds, with Sterling Corporate Bonds (2.84 per cent), Sterling High Yield (2.58 per cent) and Sterling Other Fixed Interest (2.31 per cent) leading the way.

The research follows figures published by Aon Consulting which revealed that the UK's defined contribution pension scheme members saw the value of their combined assets and projected retirement incomes fall last month from £526 billion at the end of 2009 to £509 billion.

According to Aon, small shifts in asset allocation can yield significantly different returns, underlining the need for pension members to regularly review their investment strategy.

Its report highlights how a 60 year old with 50 per cent of their pension invested in UK equities and 50 per cent in overseas equities could increase their retirement income by nearly £1,000 simply by switching to a holding of 90 per cent in cash and 10 per cent in gilts or 25 per cent in cash and 75 per cent in gilts.

Mr. Strachan added: "The differences in projected retirement income achieved through different asset choices show how choices made by DC scheme members affect their annual income in retirement.

"It may not be EuroMillions, but by taking a greater interest in investment strategy, employees could enhance their retirement income. For a 60 year old, the difference could be over £800 - the cost of a luxury holiday or golf club membership."